Two more on the Smith Commission tax proposals: ‘So, income tax apart and maybe £2.5 billion (my best estimate) of VAT receipts, all tax remains under UK control. Let’s then consider this issue in its broader context, concentrating on income tax. First, note that a power granted by Westminster is to be paid for by Scotland: there is no price tag attached. I hope someone has discussed the charging mechanism because this is a transfer pricing issue of the first order that could become very messy indeed. Second, there is no control over key aspects of income tax – and most especially tax on savings income and dividends which may be key to any goal Scotland might have to redistribute income and wealth. Without control of capital gains tax and inheritance tax the political control of the Scottish parliament on the crucial issue of inequality is extremely limited by this. Third, thankfully, there will be no race to the bottom on corporation tax. Fourth, the Scots get no control of oil revenue. So much for devo-max. Fifth, effectively the devolved power is only to set rates. Tax cannot be used by the Scottish government to encourage investment, encourage or discourage any activity it thinks desirable or undesirable, and no changes in rules relating to any aspect of what is taxable can be discussed. To call this control of tax is in that case an insult: it’s like being given a bicycle without the pedals, chain or brake and being told you’re in full control when you have actually got no power to literally power the economy as a result, or drive its direction or brake what you think inappropriate. And despite NIC being a tax in all but name that has significant economic impact, and heavy impact on the low paid, Scotland is denied any chance to control that either. So what have we got here? We have rates devolved and little more. This is political spin without real consequence: it is little more than a minor re-writing of the Barnett formula, as the VAT note concedes. And yet at the same time there is macro-economic loss of control of the currency at a UK level and a borrowing formula with Scotland that is at present hard to fathom as to consequence. So what have we got? A half baked tax devolution with almost no chance it can deliver any tax reform to create increased well being and employment in Scotland but which gives the pro-English faction every chance to beat Scotland down. It is, as I said before, a worst outcome and one that the people of Scotland will rumble as being not in the least in their interests very quickly. This issue has not been resolved by a long way as yet’. …….. ‘The trouble is Scotland does not have that power to create money. That will, as the whole referendum debate focussed upon, stay with London. So Scotland ends up with revenue collection rights but no control over money: that’s half a power at best. And it has even been denied the right to reprice necessary parts of the economy to achieve the goal of redistribution which many think absolutely vital to economic recovery because tax rates on savings and rents are going to be taken out of its control meaning it can only redistribute earned income – which is precisely what is probably not needed in Scotland’ taxresearch.org.uk/Blog/2014/11/27/scottish-income-tax-tinkering-at-the-edges-to-worst-possible-effect/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+org%2FlWWh+%28Tax+Research+UK+2%29
Posted on: Fri, 28 Nov 2014 10:46:36 +0000
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